Investing in Bitcoin has become a popular endeavor in recent years, and particularly in recent months. The price has begun to soar, and we’re now seeing major corporations invest massive sums of money into Bitcoin. But does that mean you should?
In this article, I am going to go into which companies are doing this and why, as well as provide you some guidance on how to invest in Bitcoin indirectly, so you can make a more informed decision about the investment.
What is Bitcoin (BTC)?
Bitcoin is a digital currency (and is a type of cryptocurrency) created in 2009. It’s one of the more complex investment options, for a variety of reasons. To start, there aren’t any physical Bitcoins. So although it’s called a “coin,” there is nothing more than a large public ledger accounting for the Bitcoin owned.
Bitcoin transactions get validated through a tremendous amount of computing power. In fact, the whole Bitcoin system is a system of powerful computers referred to as “miners” or “nodes.” These “nodes” manage and run the supporting code for Bitcoin, as well as store its blockchain.
(Blockchain is another relatively confusing topic – but in short, think of it as a collection of blocks. Each “block” contains a cluster of different transactions).
Bitcoin is completely unregulated, too. Meaning that it’s not backed by any financial institution or government and they’re not considered legal tender (yet). This is important to be aware of because if anything happened to your Bitcoin, there’s no governing body to help you recover it or dispute any issues.
Companies investing in Bitcoin (and why)
As I mentioned at the start of the article, many companies are now investing their cash asset reserves in Bitcoin. So who is doing this? And more importantly, why?
Here are three companies taking the plunge, and their explained reasons as to why.
Just recently, Tesla invested $1.5 billion into Bitcoin. The company stated that doing this provided them “more flexibility to further diversify and maximize returns on [their] cash.” Pretty vague, sure. But interesting to see how confident – $1.5 billion in confidence – they are in Bitcoin. Additionally, Tesla says they’ll begin accepting payments in Bitcoin for some of their products and services in certain areas.
MicroStrategy, a business intelligence company, bought more than $1 billion in Bitcoin last year (according to the NY Times). They did this to hedge against possible inflation and devaluation of the dollar. In addition, MicroStrategy plans to offer around $600 million in senior convertible notes and use the dollars generated from those notes to purchase even more Bitcoin.
That’s a fairly aggressive hedge, as their total investment in Bitcoin would ultimately become approximately $1.6 billion.
Square recently invested $170 million in Bitcoin – which is small compared to the others on this list, but it’s worth noting. Square owns Cash App, which started off as a payment app (like Venmo) to send and receive money. But now Cash App offers investing (and investing in Bitcoin).
So Square is not only drawing more users to Cash App through this purchase, but they’re also able to offer more Bitcoin to its users.
Twitter, the social media giant, hasn’t officially (or at least officially stated they have) invested in Bitcoin, but they’re strongly considering it. Twitter sees Bitcoin as a viable investment to replace some of the company’s cash reserves and they’ve even included it as an option on their balance sheet.
The Chief Financial Officer of Twitter, Ned Segal, stated that Twitter wants to think differently about how they might be able to pay an employee or vendor with Bitcoin if and when they request it.
How you can invest in Bitcoin indirectly
Purchasing Bitcoin directly does carry a significant amount of risk. Just look at the historical trends, particularly what we’ve seen in recent months. But it’s still an intriguing investment, and if you think about what MicroStrategy is doing, they’re levering Bitcoin as a hedge against a devalued dollar.
So there’s a way you can invest in Bitcoin but do so indirectly. Meaning, you’d invest in companies that are big on this cryptocurrency and committed to investing in it themselves. You just have to know how to appropriately research the companies that invest in it.
Get a brokerage account
The first thing you need to do is get a brokerage account. Ideally, you’d want a brokerage account that also offers the ability to purchase Bitcoin directly. That way, if you decide you want to take on more risk and purchase the crypto directly, you can.
For this, consider Robinhood. Robinhood uses an intuitive app experience to allow you to quickly research and buy stocks. You’ll be able to get information on their financials, as well as related news articles, so you can determine if (and to what degree) the company has invested in Bitcoin. Alternatively, you can buy Bitcoin directly through Robinhood.
Research the stocks you want to buy
After you have a brokerage account, you need to research the stocks you want to purchase. For example, if you want to invest in Tesla, you should review not only the fact they’ve invested in Bitcoin but also things like their annual report and their financial statements.
One of the best options for doing research right now is TipRanks. TipRanks gives you access to loads of information for a low monthly fee. They aggregate news, analyst ratings, and in-depth research from a variety of different sources into one clean dashboard so you can be much more efficient in your stock investing.
Determine the number of shares to invest in
Once you’re comfortable with the specific stocks you want to invest in, you should decide how much of your portfolio you want to allocate to that particular stock – or how many shares. If you’re using a platform like Public, for example, you don’t really have to worry too much about the number of shares because they allow fractional share investing.
Know how to place your order
Before placing an order, there are two main order types you should be aware of – a market order and a limit order. Here’s the difference:
- Market order – A market order is when you buy or sell a stock at the current market price. That price might be different than the price you think because you have to wait until there’s a buyer or seller lined up for the transaction to happen. Usually, the price discrepancies are minimal, though.
- Limit order – A limit order allows you to have control over how much you buy or sell the stock for. You can set the limit price by which the trade will execute at. So for example, if you buy a stock at $150, you can set a limit to sell once it reaches $175 (and it won’t sell for less than that).
Buy Bitcoin another way
The cool thing about Bitcoin is that you don’t necessarily have to sign up for a brokerage (or a new brokerage) to buy it. There are a handful of options for buying Bitcoin through other services:
PayPal, yes the payment platform, now offers the ability for you to buy and hold Bitcoin, as well as some other cryptocurrencies. You can start with as little as $1 and Paypal even offers resources for beginners who are just getting started with crypto investing.
From there, you can buy, hold, and sell your crypto all within the PayPal app, and you’ll get the same level of security you’d normally expect from PayPal, which is a huge bonus.
Cash App, which is owned by Square, is an app designed to let you send and receive money. But recently, they’ve added the ability to invest in both stocks and crypto, including Bitcoin. It’s easy to find stocks of companies that hold Bitcoin through Cash App, or just buy Bitcoin directly.
What you miss out on is an in-depth analysis, but that’s not what Cash App is trying to do, either. They want to keep things really simple.
Pros to investing in Bitcoin indirectly
Here are some of the upsides to investing in Bitcoin indirectly:
It can be less expensive
Historically, Bitcoin has remained fairly expensive. In fact, as of this writing, it’s close to $50,000 per BTC. So, investing in a company that puts a significant portion of their reserves into Bitcoin can be a cheaper way to indirectly invest in the currency.
If you’ve ever looked at the historical performance of Bitcoin, it’s no secret that it’s a highly volatile investment. In early 2017, Bitcoin sat at under $1,000. By the fall of that year, it jumped to close to $5,000, then back down to the mid-$3,000s just a couple of weeks later.
By December of 2017, Bitcoin was close to $20,000 but then fell down to the low $6,000s by the spring of 2018.
And so here we are again, back to a meteoric rise (with some major bumps and bruises along the way, though). By instead investing in companies who are putting cash reserves into BTC, you can mitigate some of the volatility you’ll likely see when buying Bitcoin on its own.
While more and more places are starting to offer Bitcoin, it’s still uncommon for a brokerage to allow access to it. And when a brokerage does offer access, you have to be mindful of where that coin is stored.
Unless you have your own Bitcoin wallet and you’re buying it on an exchange, it’s likely that brokerage is going to hold your Bitcoin for you – which can be challenging if you want to sell it elsewhere.
So to circumvent those issues, you can just buy the stock of a Bitcoin-heavy company and make your entire investment a lot easier.
A lot of people are starting to get on board with Bitcoin (and other crypto for that matter). Not only as an investment but also as a payment system. It’s faster and lower-cost than other payment systems. And it’s global.
Plus, many people see it as a viable investment option. Risky, but something that can hedge against other things like inflation. And if you keep your investment small, the risk is somewhat mitigated.
The companies I mentioned above are investing more into Bitcoin. And so are companies like Mastercard – who plans to extend its cryptocurrency program – and Apple – who now accepts Bitcoin as a form of payment via Apple Pay.
Finally, Bitcoin has a higher return on investment than dollars sitting in cash reserves and when it reaches a high enough valuation (for example $1 million) it’ll be able to be leveraged for major business deals without the need for a third-party processor.
Cons to investing in Bitcoin indirectly
There are some major cons to investing in Bitcoin indirectly that you need to know about.
You’re not completely immune
While investing in a company (rather than directly in Bitcoin) will protect you from some fluctuations, it does not protect your investments from every market swing. It’s the nature of the stock market to ebb and flow.
Tyrone Ross, CEO of Onramp Invest, noted that
“The majority of people should be spending more time learning than buying.”
Experts recommend only investing an amount that you are comfortable losing and holding for the long-term when it comes to cryptocurrency.
It’s not quite mainstream yet
While there’s a lot of buzz around Bitcoin, most people still wouldn’t consider it a traditional investment – and still consider it a risky one, at that. Take Mr. Ross’s quote above – right now people are buying something that they may know nothing about, which is scary.
Once the world learns more about Bitcoin, how it can be used outside of an investment, and what the future holds, it may become a more “mainstream” option. That said, by then it may be too late to get in. Regardless, know that it’s still a bit of a mystery in the investing world.
It’s not treated the same as cash
From a company’s investment perspective, owning Bitcoin is not the same as holding most other investments. Cryptocurrency is treated as property, not like cash or cash equivalents. So it may be subject to different tax rules and other reporting nuances.
The SEC right now is watching cryptocurrency, including several lawsuits existing on how it’s managed. There is no governing body to it, which for some might be a breath of fresh air, but for many, will cause some angst as to how it’s regulated and managed consistently.
Meaning, if you were to lose your Bitcoin or have it stolen, there’s nothing anyone can do about it – you’re out of luck. The same goes for companies investing in it.
Should you invest in Bitcoin?
Generally, the consensus seems to be that Bitcoin is going to continue going up in the future and as such, it may be a good investment.
Some financial advisors may recommend investing in Bitcoin. Plus, with projections that Bitcoin can reach $1 million in the next decade, the time for exposure to this asset is now…if you’re willing to take on the significant risk.
Remember that the amount of Bitcoin available is finite – at some point, it will run out. Only 21 million Bitcoin can be mined in total and as of this writing, there are approximately 18,614,806 Bitcoin in existence and 2,385,193 Bitcoin left to be mined.
Regardless of what you decide, make sure you’ve researched the options and you have other investments to balance out the risk.